Goldman Sachs: It's time to buy U.S. momentum stocks

U.S. momentum stocks have recently experienced severe sell-offs, but Goldman Sachs analysts believe that the current moment may be close to a buying opportunity.

Data shows that Goldman's high beta momentum stock indicator has fallen by about 10 percentage points in the past five days, nearing its technical support level, and historical statistics indicate that similar significant pullbacks often signal a rebound opportunity in the short term.

This wave of sell-off began with a collective decline in high momentum stocks, particularly the artificial intelligence sector, which has faced immense pressure. Goldman trader Julia Masch pointed out that the high beta momentum stock indicator is approaching its support level, and the movements of related indicators show a clear shift in investor sentiment.

Momentum Stocks Face Significant Pullback

Goldman's high beta momentum stock indicator (GSPRHIMO Index) has dropped by about 13% since its peak on August 11, with over 10 percentage points of the decline concentrated in the last five days. This indicator is currently nearing the bottom of its regression channel and is also approaching the 200-day moving average, with technical indicators showing that the sector is nearing oversold territory.

It is noteworthy that this wave of sell-off initially appeared as a rebound in short stocks, but this week's price movements indicate that primarily long positions have borne greater pressure, especially as thematic sectors like artificial intelligence have been impacted in this round of rotation.

Goldman data shows that the correlation between momentum and artificial intelligence sectors has recently increased, making today's sell-off painful for the entire composite sector.

Momentum stocks refer to those that have shown strong price performance recently and are expected to continue their upward momentum. This investment strategy is based on the market momentum theory, which posits that stocks that have risen tend to continue rising, while those that have fallen may continue to fall, at least in the short term.

Goldman's momentum stock indicator primarily tracks stocks with high beta coefficients (i.e., sensitive to market fluctuations) that have recently outperformed the market. These stocks typically exhibit high volatility, performing well in bull markets but may also suffer larger pullbacks when market sentiment reverses.

Historical Data Shows Rebound Opportunities

According to Goldman research, historically, when the high beta momentum stock indicator has fallen more than 10% in 5 days, there is an 80% probability of positive returns in the following week. Historical data shows that after such sharp pullbacks, the median return rate within a week is 4.5%, reaching 11.05% within a month.

From a technical perspective, multiple technical indicators such as regression lines, the 200-day moving average, and the relative strength index (RSI) suggest that the current position may constitute a good entry point, unless next week's tech earnings reports trigger a more prolonged sell-off in artificial intelligence stocks.

European momentum stocks have also faced tough times, exemplified by the sharp decline in the European defense sector. However, pure momentum indicators (GSPUMOMO) and momentum indicators excluding artificial intelligence factors (GSPUMOXX) have performed relatively robustly, with more moderate declines